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Manufacturers should start preparing now for BEPS

Base erosion and profit shifting will fundamentally change international taxation

INSIGHT ARTICLE

Steve Menaker

BEPS will radically transform international taxation over the next few years. For many companies, it may mean restructuring global operations. Yet, many executives haven’t heard of it, and most companies haven’t started planning for it.

What is BEPS? It stands for base erosion and profit shifting and it’s a cooperative, multinational effort by the Organization for Economic Cooperation and Development and driven by the G-20 nations to address methods by which multinational enterprises exploit gaps between national tax regimes to shift income to low- or no-tax jurisdictions. The goal is simple—ensure that companies are paying taxes on their revenue in the countries where that revenue is created.

BEPS is partly a response to increasing political pressure. Consider the protests in the U.K. in 2013 after media reports revealed that Starbucks, despite significant operations in the U.K., paid almost no taxes there. Starbucks eventually agreed to voluntarily pay more than $30 million to the British treasury, even though Starbucks hadn’t violated any tax laws. The reputational risk associated with aggressive international tax planning will be an increasing concern under BEPS, since BEPS calls for heightened transparency into multinational tax activities.

With the completion of the discussion drafts on all 15 topics by the OECD, it will be up to each nation to decide whether to implement these solutions, but it is clear that many will. Several countries already have proposed or enacted legislation based on BEPS, including Australia, France, Spain and the U.K. Significant change is coming.

Planning for BEPS

It’s time to plan. But how?

BEPS targets a number of common international tax planning tactics, including:

As countries legislate to curtail these tactics, many companies may have to change corporate structures. New reporting requirements may require upgrading operations and systems. All of that takes time and resources. To avoid facing potentially significant compliance risk, smart companies are weighing their current positions against the 15-point BEPS framework now to identify their tax risks and plan contingent strategies.

For international companies, the choice on BEPS is clear. Plan now or pay later.

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